Division of Investment Management Takes Action on New Marketing Rule

The SEC’s Division of Investment Management (IM) recently issued an Information Update on the new Marketing Rule, amended Rule 206(4)-1. Significantly, the update includes a list of the SEC no-action letters (“Staff Letters”) that are now withdrawn and no longer valid for reliance by investment advisers. This is the result of the modifications to the Advertising Rule and Cash Solicitation Rule, which occurred at the end of last year. The new rule has a full compliance date of November 4, 2022. All SEC registered investment advisers must have updated policies and procedures in place by the compliance date. For details on the new Rule, see our ComplianceAlert, “SEC Modernizes Advertising Rule,” January 8, 2021.

For over 50 years the industry has relied upon the various Staff Letters that existed, which provided guidance to firms on how to comply with current Rule 206(4)-1 (advertising) and Rule 206(4)-3 (solicitation). Until now, neither the Advertising Rule nor the Cash Solicitation Rule alone contained all the information needed for a firm to comply with the Rules. An advisory firm had to look to all the Staff Letters and know how to properly interpret those letters in order to comply with the Rules.

Now advisers can no longer rely on those Staff Letters. Some Staff Letters were only partially withdrawn regarding the specific sections relating to the Advertising Rule. So essentially, IM has withdrawn all the previous Rule guidance via Staff Letters. Listed below are some of the most well-known Advertising Rule Staff Letters that are now obsolete:

  • Clover Capital Management, both 1986 and 1991 letters
  • Anametrics Investment Management, May 5, 1977
  • Cambiar Investors, August 28, 1997
  • DALBAR, March 24, 1998
  • Denver Investment Advisors, July 30, 1993
  • Franklin Management, December 10, 1998
  • Horizon Asset Management, September 13, 1996
  • Investment Adviser Association, December 2, 2005
  • J.P. Morgan Investment Management, May 7, 1996
  • The TCW Group, November 7, 2008

As of November 4, 2022, any firm intending to show predecessor performance, related performance, past specific recommendations, model performance, etc. will have to rely upon language in the new revised Rule as opposed to any Staff Letter that previously existed.

A similar fate occurred to the many Staff Letters issued under the Cash Solicitation Rule that mostly related to the Rule’s disqualification procedures. The revised Rule contains new disqualifying conditions primarily related to compensated promoters.

So, it’s time to throw out the old book and open to the first page of a new book when it comes to advisers’ advertising and solicitation practices.

View the IM Information Update, “Division of Investment Management Staff Statement Regarding Withdrawal and Modification of Staff Letters Related to Rulemaking on Investment Adviser Marketing” and its Appendix A, “Staff Letters Relating to the Advertising Rule (Withdrawn Staff Letters), October 2021”